MEXCO ENERGY CORP 10-Q

Item 1. Financial Statements Mexco Energy Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS December 31, March 31, 2021 2021 (Unaudited) ASSETS Current assets Cash and cash equivalents $ 880,190 $ 57,813 Accounts receivable: Oil and natural gas sales 750,683 621,384 Trade 4 30,402 Prepaid costs and expenses 21,160 47,895 Total current assets 1,652,037 757,494 Property and equipment, at cost Oil and gas properties, using the full cost method 39,720,323 38,664,347 Other 120,208 120,208 Accumulated depreciation, depletion and amortization ( 29,828,011 ) ( 29,015,612 ) Property and equipment, net 10,012,520 9,768,943 Investment – cost basis 250,000 200,000 Operating lease, right-of-use asset 143,182 20,861 Other noncurrent assets 15,657 83,389 Total assets $ 12,073,396 $ 10,830,687 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable and accrued expenses $ 154,571 $ 116,569 Operating lease liability, current 53,788 21,965 Total current liabilities 208,359 138,534 Long-term liabilities Long-term debt - 1,154,949 Operating lease liability, long-term 89,394 - Asset retirement obligations 737,457 713,797 Total long-term liabilities 826,851 1,868,746 Total liabilities 1,035,210 2,007,280 Commitments and contingencies - - Stockholders’ equity Preferred stock - $ 1.00 par value; 10,000,000 shares authorized; none outstanding - - Common stock - $ 0.50 par value; 40,000,000 shares authorized; 2,188,666 and 2,143,666 shares issued; 2,121,666 and 2,076,666 shares outstanding as of December 31, 2021 and March 31, 2021, respectively 1,094,333 1,071,833 Additional paid-in capital 7,959,357 7,624,214 Retained earnings 2,330,497 473,361 Treasury stock, at cost ( 67,000 shares) ( 346,001 ) ( 346,001 ) Total stockholders’ equity 11,038,186 8,823,407 Total liabilities and stockholders’ equity $ 12,073,396 $ 10,830,687 The accompanying notes are an integral part of the consolidated financial statements. 2 Mexco Energy Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) 2021 2020 2021 2020 Three Months Ended Nine Months Ended December 31 December 31 2021 2020 2021 2020 Operating revenue: Oil sales $ 1,073,078 $ 520,261 $ 3,193,315 $ 1,307,588 Natural gas sales 500,906 171,982 1,177,405 378,798 Other 21,360 7,651 42,303 20,006 Total operating revenues 1,595,344 699,894 4,413,023 1,706,392 Operating expenses: Production 291,068 235,958 903,643 624,741 Accretion of asset retirement obligation 7,327 7,116 21,630 21,540 Depreciation, depletion, and amortization 268,018 237,459 812,398 697,698 General and administrative 272,552 193,288 794,961 634,526 Total operating expenses 838,965 673,821 2,532,632 1,978,505 Operating income (loss) 756,379 26,073 1,880,391 ( 272,113 ) Other income (expenses): Interest income 55 71 126 387 Interest expense ( 3,132 ) ( 14,604 ) ( 23,381 ) ( 39,174 ) PPP loan forgiveness - 68,957 - 68,957 Loss on derivative instruments - - - ( 19,200 ) Net other (expense) income ( 3,077 ) 54,424 ( 23,255 ) 10,970 Income (loss) before income taxes 753,302 80,497 1,857,136 ( 261,143 ) Net income (loss) $ 753,302 $ 80,497 $ 1,857,136 $ ( 261,143 ) Income (loss) per common share: Basic: $ 0.36 $ 0.04 $ 0.89 $ ( 0.13 ) Diluted: $ 0.35 $ 0.04 $ 0.87 $ ( 0.13 ) Weighted average common shares outstanding: Basic: 2,120,912 2,051,081 2,096,433 2,044,054 Diluted: 2,176,240 2,054,288 2,146,717 2,044,054 The accompanying notes are an integral part of the consolidated financial statements. 3 Mexco Energy Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited) Common Stock Par Value Additional Paid-In Capital Retained Earnings Treasury Stock Total Stockholders’ Equity Balance at April 1, 2021 $ 1,071,833 $ 7,624,214 $ 473,361 $ ( 346,001 ) $ 8,823,407 Net income - - 1,857,136 - 1,857,136 Issuance of stock through options exercised 22,500 273,140 - - 295,640 Stock based compensation - 62,003 - - 62,003 Balance at December 31, 2021 $ 1,094,333 $ 7,959,357 $ 2,330,497 $ ( 346,001 ) $ 11,038,186 Common Stock Par Value Additional Paid-In Capital Retained Earnings Treasury Stock Total Stockholders’ Equity Balance at September 30, 2021 $ 1,085,783 $ 7,832,429 $ 1,577,195 $ ( 346,001 ) $ 10,149,406 Net income - - 753,302 - 753,302 Issuance of stock through options exercised 8,550 101,358 - - 109,908 Stock based compensation - 25,570 - - 25,570 Balance at December 31, 2021 $ 1,094,333 $ 7,959,357 $ 2,330,497 $ ( 346,001 ) $ 11,038,186 Common Stock Par Value Additional Paid-In Capital Retained Earnings Treasury Stock Total Stockholders’ Equity Balance at April 1, 2020 $ 1,053,583 $ 7,339,351 $ 317,429 $ ( 346,001 ) $ 8,364,362 Net loss - - ( 261,143 ) - ( 261,143 ) Issuance of stock through options exercised 5,850 72,945 - - 78,795 Stock based compensation - 41,813 - - 41,813 Balance at December 31, 2020 $ 1,059,433 $ 7,454,109 $ 56,286 $ ( 346,001 ) $ 8,223,827 Common Stock Par Value Additional Paid-In Capital Retained Earnings Treasury Stock Total Stockholders’ Equity Balance at September 30, 2020 $ 1,054,333 $ 7,375,984 $ ( 24,211 ) $ ( 346,001 ) $ 8,060,105 Net income - - 80,497 - 80,497 Net income (loss) 80,497 80,497 Issuance of stock through options exercised 5,100 64,260 - - 69,360 Stock based compensation - 13,865 - - 13,865 Balance at December 31, 2020 $ 1,059,433 $ 7,454,109 $ 56,286 $ ( 346,001 ) $ 8,223,827 SHARE ACTIVITY Common stock shares, issued: Balance at April 1, 2021 2,143,666 Issued 45,000 Balance at Dec. 31, 2021 2,188,666 Common stock shares, held in treasury: Balance at April 1, 2021 ( 67,000 ) Acquisitions - Balance at Dec. 31, 2021 ( 67,000 ) Common stock shares, outstanding at December 31, 2021 2,121,666 The accompanying notes are an integral part of the consolidated financial statements. 4 Mexco Energy Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended December 31, (Unaudited) 2021 2020 Cash flows from operating activities: Net income (loss) $ 1,857,136 $ ( 261,143 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Stock-based compensation 62,003 41,813 Depreciation, depletion and amortization 812,398 697,698 Accretion of asset retirement obligations 21,630 21,540 Non-cash lease expense 42,687 48,503 PPP loan forgiveness - ( 68,574 ) Amortization of debt issuance costs 9,394 9,394 Changes in operating assets and liabilities: Increase in accounts receivable ( 98,901 ) ( 94,769 ) Decrease in prepaid expenses 26,736 41,433 Increase (decrease) in accounts payable and accrued expenses 42,034 ( 8,009 ) Settlement of asset retirement obligations ( 2,741 ) ( 7,398 ) Decrease in operating lease liability ( 43,790 ) ( 47,625 ) Net cash provided by operating activities 2,728,586 372,863 Cash flows from investing activities: Additions to oil and gas properties ( 1,213,618 ) ( 1,024,104 ) Additions to other property and equipment - ( 3,215 ) Drilling refund 229,800 121,970 Investment in limited liability company at cost ( 50,000 ) ( 25,000 ) Proceeds from sale of oil and gas properties and equipment 11,969 111,752 Net cash used in investing activities ( 1,021,849 ) ( 818,597 ) Cash flows from financing activities: Proceeds from exercise of stock options 295,640 78,795 Proceeds from long-term debt 275,000 680,000 Proceeds from PPP loan - 68,574 Reduction of long-term debt ( 1,455,000 ) ( 375,000 ) Net cash (used in) provided by financing activities ( 884,360 ) 452,369 Net increase in cash and cash equivalents 822,377 6,635 Cash and cash equivalents at beginning of period 57,813 34,381 Cash and cash equivalents at end of period $ 880,190 $ 41,016 Supplemental disclosure of cash flow information: Cash paid for interest $ 14,834 $ 28,634 Non-cash investing and financing activities: Asset retirement obligations $ 12,499 $ 14,013 Operating lease – right of use asset and associated liabilities $ 165,007 $ 9,360 The accompanying notes are an integral part of the consolidated financial statements. 5 Mexco Energy Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Nature of Operations Mexco Energy Corporation (a Colorado corporation) and its wholly owned subsidiaries, Forman Energy Corporation (a New York corporation), Southwest Texas Disposal Corporation (a Texas corporation) and TBO Oil & Gas, LLC (a Texas limited liability company) (collectively, the “Company”) are engaged in the exploration, development and production of natural gas, crude oil, condensate and natural gas liquids (“NGLs”). Most of the Company’s oil and gas interests are centered in West Texas and Southeastern New Mexico; however, the Company owns producing properties and undeveloped acreage in fourteen states. All of the Company’s oil and gas interests are operated by others. 2. Basis of Presentation and Significant Accounting Policies Principles of Consolidation . The consolidated financial statements include the accounts of Mexco Energy Corporation and its wholly owned subsidiaries. All significant intercompany balances and transactions associated with the consolidated operations have been eliminated. Estimates and Assumptions . In preparing financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”), management is required to make informed judgments, estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and affect the reported amounts of revenues and expenses during the reporting period. In addition, significant estimates are used in determining proved oil and gas reserves. Although management believes its estimates and assumptions are reasonable, actual results may differ materially from those estimates. The estimate of the Company’s oil and natural gas reserves, which is used to compute depreciation, depletion, amortization and impairment of oil and gas properties, is the most significant of the estimates and assumptions that affect these reported results. Interim Financial Statements . In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position of the Company as of December 31, 2021, and the results of its operations and cash flows for the interim periods ended December 31, 2021 and 2020. The consolidated financial statements as of December 31, 2021 and for the three and nine month periods ended December 31, 2021 and 2020 are unaudited. The consolidated balance sheet as of March 31, 2021 was derived from the audited balance sheet filed in the Company’s 2021 annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”). The results of operations for the periods presented are not necessarily indicative of the results to be expected for a full year. The accounting policies followed by the Company are set forth in more detail in Note 2 of the “Notes to Consolidated Financial Statements” in the Form 10-K. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the SEC. However, the disclosures herein are adequate to make the information presented not misleading. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Form 10-K. Investments . The Company accounts for investments of less than 1% of any limited liability companies at cost. The Company has no control of the limited liability companies. The cost of the investment is recorded as an asset on the consolidated balance sheets and when income from the investment is received, it is immediately recognized on the consolidated statements of operations. Derivative Financial Instruments . The Company’s derivative financial instruments are used to manage commodity price risk attributable to expected oil and gas production. While there is risk the financial benefit of rising oil and gas prices may not be captured, the Company believes the benefits of stable and predictable cash flows outweigh the potential risks. The Company accounts for derivative financial instruments using fair value accounting and recognizes gains and losses in earnings during the period in which they occur. Unsettled derivative instruments are recorded in the accompanying consolidated balance sheets as either a current or non-current asset or a liability measured at its fair value. The Company only offsets derivative assets and liabilities for arrangements with the same counterparty when right of offset exists. Derivative assets and liabilities with different counterparties are recorded gross in the consolidated balance sheets. Derivative contract settlements are reflected in operating activities in the accompanying consolidated statements of cash flows. As of December 31, 2021, the Company had no derivative contracts. During the nine months ended December 31, 2020, the Company entered into a series of crude oil put option contracts. All of these such contracts expired in July and August 2020. 6 3. Asset Retirement Obligations The Company’s asset retirement obligations (“ARO”) relate to the plugging of wells, the removal of facilities and equipment, and site restoration on oil and gas properties. The fair value of a liability for an ARO is recorded in the period in which it is incurred, discounted to its present value using the credit adjusted risk-free interest rate, and a corresponding amount capitalized by increasing the carrying amount of the related long-lived asset. The liability is accreted each period until the liability is settled or the well is sold, at which time the liability is removed. The related asset retirement cost is capitalized as part of the carrying amount of our oil and natural gas properties. The ARO is included in the consolidated balance sheets with the current portion being included in the accounts payable and other accrued expenses. The following table provides a rollforward of the AROs for the first nine months of fiscal 2022: Schedule of Rollforward of Asset Retirement Obligations Carrying amount of asset retirement obligations as of April 1, 2021 $ 728,797 Liabilities incurred 12,499 Liabilities settled ( 10,469 ) Accretion expense 21,630 Carrying amount of asset retirement obligations as of December 31, 2021 752,457 Less: Current portion 15,000 Non-Current asset retirement obligation $ 737,457 4. Stock-based Compensation The Company recognized stock-based compensation expense of $ 25,570 and $ 13,865 in general and administrative expense in the Consolidated Statements of Operations for the three months ended December 31, 2021 and 2020, respectively. Stock-based compensation expense recognized for the nine months ended December 31, 2021 and 2020 was $ 62,003 and $ 41,813 , respectively. The total cost related to non-vested awards not yet recognized at December 31, 2021 totals approximately $ 239,677 which is expected to be recognized over a weighted average of 2.57 years. During the nine months ended December 31, 2021, the Compensation Committee of the Board of Directors approved and the Company granted 31,000 stock options exercisable at $ 8.51 per share with an estimated fair value of $ 187,550 . During the nine months ended December 31, 2020, no stock options were granted. These options are exercisable at a price not less than the fair market value of the stock at the date of grant, have an exercise period of ten years and generally vest over four years . Included in the following table is a summary of the grant-date fair value of stock options granted and the related assumptions used in the Binomial models for stock options granted during the nine months ended December 31, 2021 and 2020. All such amounts represent the weighted average amounts. Summary of Grant-date Fair Value of Stock Options Granted and Assumptions Used Binomial Models NIne Months Ended December 31 2021 2020 Grant-date fair value $ 6.05 - Volatility factor 65.38 % - Dividend yield - - Risk-free interest rate 0.92 % - Expected term (in years) 6.25 - 7 The following table is a summary of activity of stock options for the nine months ended December 31, 2021: Summary of Activity of Stock Options Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contract Life in Years Intrinsic Value Outstanding at April 1, 2021 156,000 $ 5.28 5.53 $ 555,100 Granted 31,000 8.51 Exercised ( 45,000 ) 6.57 Forfeited or Expired - - Outstanding at December 31, 2021 142,000 $ 5.58 6.78 $ 539,850 Vested at December 31, 2021 70,250 $ 5.35 4.94 $ 282,775 Exercisable at December 31, 2021 70,250 $ 5.35 4.94 $ 282,775 During the nine months ended December 31, 2021, stock options covering 45,000 shares were exercised with a total intrinsic value of $ 241,226 . The Company received proceeds of $ 295,640 from these exercises. During the nine months ended December 31, 2020, stock options covering 1,500 shares were exercised with a total intrinsic value of $ 135 . The Company received proceeds of $ 9,435 from these exercises. There were no stock options forfeited or expired during the nine months ended December 31, 2021. During the nine months ended December 31, 2020, 1,000 unvested stock options were forfeited due to the resignation of an employee and 34,200 vested stock options expired unexercised. No forfeiture rate is assumed for stock options granted to directors or employees due to the forfeiture rate history of these types of awards. Outstanding options at December 31, 2021 expire between April 2023 and July 2031 and have exercise prices ranging from $ 3.34 to $ 8.51 . 5. Long Term Debt Long-term debt on the Consolidated Balance Sheets consisted of the following as of the dates indicated: Schedule of Long-Term Debt December 31, 2021 March 31, 2021 Credit facility $ - $ 1,180,000 Unamortized debt issuance costs (1) - ( 25,051 ) Total long-term debt $ - $ 1,154,949 (1) For the current period, since the Company has no long-term debt outstanding, unamortized debt issuance costs in the amount of $ 15,657 are included in Other noncurrent assets. On December 28, 2018, the Company entered into a loan agreement (the “Agreement”) with West Texas National Bank (“WTNB”), which originally provided for a credit facility of $ 1,000,000 with a maturity date of December 28, 2021 . The Agreement has no monthly commitment reduction and a borrowing base to be evaluated annually. On February 28, 2020, the Agreement was amended to increase the credit facility to $ 2,500,000 , extend the maturity date to March 28, 2023 and increase the borrowing base to $ 1,500,000 . Under the Agreement, interest on the credit facility accrues at a rate equal to the prime rate as quoted in the Wall Street Journal plus one-half of one percent ( 0.5 %) floating daily. Interest on the outstanding amount under the Agreement is payable monthly. In addition, the Company will pay an unused commitment fee in an amount equal to one-half of one percent (0.5%) times the daily average of the unadvanced amount of the commitment . The unused commitment fee is payable quarterly in arrears on the last day of each calendar quarter. As of December 31, 2021, there was $ 1,500,000 available for borrowing by the Company on the facility. No principal payments are anticipated to be required through the maturity date of the credit facility, March 28, 2023 . Upon closing with WTNB on the original Agreement, the Company paid a .5% loan origination fee in the amount of $ 5,000 plus legal and recording expenses totaling $ 34,532 , which were deferred over the original life of the credit facility. Upon closing the amendment to the Agreement, the Company paid a .1% loan origination fee of $ 2,500 and an extension fee of $ 3,125 plus legal and recording expenses totaling $ 12,266 , which were also deferred over the life of the credit facility. Amounts borrowed under the Agreement are collateralized by the common stock of the Company’s wholly owned subsidiaries and substantially all of the Company’s oil and gas properties. 8 The Agreement contains customary covenants for credit facilities of this type including limitations on change in control, disposition of assets, mergers and reorganizations. The Company is also obligated to meet certain financial covenants under the Agreement and requires senior debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratios (Senior Debt/EBITDA) less than or equal to 4.00 to 1.00 measured with respect to the four trailing quarters and minimum interest coverage ratios (EBITDA/Interest Expense) of 2.00 to 1.00 for each quarter . In addition, this Agreement prohibits the Company from paying cash dividends on its common stock without written permission of WTNB. The Agreement does not permit the Company to enter into hedge agreements covering crude oil and natural gas prices without prior WTNB approval. There was no balance outstanding on the line of credit as of December 31, 2021. The following table is a summary of activity on the WTNB line of credit for the nine months ended December 31, 2021: Summary of Line of Credit Activity Principal Balance at April 1, 2021: $ 1,180,000 Borrowings 275,000 Repayments ( 1,455,000 ) Balance at December 31, 2021: $ - 6. Leases The Company leases approximately 4,160 rentable square feet of office space from an unaffiliated third party for the corporate office located in Midland, Texas. This includes 1,112 square feet of office space shared with and reimbursed by the majority shareholder. The lease does not include an option to renew and is a 36 -month lease that was to expire in May 2021. In June 2020, in exchange for a reduction in rent for the months of June and July 2020, the Company agreed to a 2-month extension to its current lease agreement at the regular monthly rate extending its current lease expiration date to July 2021. In June 2021, the Company agreed to extend its current lease at a flat (unescalated) rate for 36 months. The amended lease now expires on July 31, 2024 . The Company determines an arrangement is a lease at inception. Operating leases are recorded in operating lease right-of-use asset, operating lease liability, current, and operating lease liability, long-term on the consolidated balance sheets. Operating lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company’s lease does not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate used at adoption was 3.75 %. Significant judgement is required when determining the incremental borrowing rate. Rent expense for lease payments is recognized on a straight-line basis over the lease term. The balance sheets classification of lease assets and liabilities was as follows: Schedule of Operating Lease Assets and Liabilities December 31, 2021 Assets Operating lease right-of-use asset, beginning balance $ 20,861 Current period amortization ( 42,686 ) Lease amendment 165,007 Total operating lease right-of-use asset $ 143,182 Liabilities Operating lease liability, current $ 53,788 Operating lease liability, long term 89,394 Total lease liabilities $ 143,182 9 Future minimum lease payments as of December 31, 2021 under non-cancellable operating leases are as follows: Schedule of Future Minimum Lease Payments Lease Obligation Fiscal Year Ended March 31, 2022 14,560 Fiscal Year Ended March 31, 2023 58,240 Fiscal Year Ended March 31, 2024 58,240 Fiscal Year Ended March 31, 2025 19,413 Total lease payments $ 150,453 Less: imputed interest ( 7,271 ) Operating lease liability 143,182 Less: operating lease liability, current ( 53,788 ) Operating lease liability, long term $ 89,394 Net cash paid for our operating lease for the nine months ended December 31, 2021 and 2020 was $ 31,570 and $ 34,121 , respectively. Rent expense, less sublease income of $ 14,662 and $ 14,315 , respectively, is included in general and administrative expenses. 7. Income Taxes A valuation allowance for deferred tax assets, including net operating losses, is recognized when it is more likely than not that some or all of the benefit from the deferred tax asset will not be realized. To assess that likelihood, we use estimates and judgment regarding our future taxable income, and we consider the tax consequences in the jurisdiction where such taxable income is generated, to determine whether a valuation allowance is required. Such evidence can include our current financial position, our results of operations, both actual and forecasted, the reversal of deferred tax liabilities, and tax planning strategies as well as the current and forecasted business economics of our industry. Based on the material write-downs of the carrying value of our oil and natural gas properties during fiscal 2016, we are in a net deferred tax asset position as of December 31, 2021. Our deferred tax asset is $ 887,701 as of December 31, 2021 with a valuation amount of $ 887,701 . We believe it is more likely than not that these deferred tax assets will not be realized. Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of deferred tax assets. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as future expected growth. 8. Related Party Transactions Related party transactions for the Company relate to shared office expenditures in addition to administrative and operating expenses paid on behalf of the principal stockholder. The total billed to and reimbursed by the stockholder for the three months ended December 31, 2021 and 2020 was $ 12,276 and $ 9,122 , respectively. The total billed to and reimbursed by the stockholder for the nine months ended December 31, 2021 and 2020 was $ 35,332 and $ 27,443 , respectively. The principal stockholder pays for his share of the lease amount for the shared office space directly to the lessor. Amounts paid by the principal stockholder directly to the lessor for the three months ending December 31, 2021 and 2020 were $ 3,893 and $ 4,045 , respectively. Amounts paid by the principal stockholder directly to the lessor for the nine months ending December 31, 2021 and 2020 were $ 11,882 and $ 11,694 , respectively. 9. Income (loss) Per Common Share The Company’s basic net income (loss) per share has been computed based on the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share assumes the exercise of all stock options having exercise prices less than the average market price of the common stock during the period using the treasury stock method and is computed by dividing net income (loss) by the weighted average number of common shares and dilutive potential common shares (stock options) outstanding during the period. In periods where losses are reported, the weighted-average number of common shares outstanding excludes potential common shares, because their inclusion would be anti-dilutive. 10 The following is a reconciliation of the number of shares used in the calculation of basic and diluted net income (loss) per share for the three and nine month periods ended December 31, 2021 and 2020: Schedule of Reconciliation of Basic and Diluted Net Income (loss) Per Share Three Months Ended Nine Months Ended December 31 December 31 2021 2020 2021 2020 Net income (loss) $ 753,302 $ 80,497 $ 1,857,136 $ ( 261,143 ) Shares outstanding: Weighted avg. shares outstanding – basic 2,120,912 2,051,081 2,096,433 2,044,054 Effect of assumed exercise of dilutive stock options 55,328 3,207 50,284 - Weighted avg. shares outstanding – dilutive 2,176,240 2,054,288 2,146,717 2,044,054 Income (loss) per common share: Basic $ 0.36 $ 0.04 $ 0.89 $ ( 0.13 ) Diluted $ 0.35 $ 0.04 $ 0.87 $ ( 0.13 ) For the three and nine months ended December 31, 2021, 31,000 shares relating to stock options were excluded from the computation of diluted net income because their inclusion would be anti-dilutive. Anti-dilutive stock options have a weighted average exercise price of $ 8.51 at December 31, 2021. For the three ended December 31, 2020, 139,800 shares relating to stock options were excluded from the computation of diluted net income because their inclusion would be anti-dilutive. Anti-dilutive stock options have a weighted average exercise price of $ 6.12 at December 31, 2020. Due to a net loss for the nine months ended December 31, 2020, the weighted average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. 10. Subsequent Events In January 2022, the Company expended $ 25,000 to exercise its option to participate in the first of two optional cash calls increasing the capitalized investment of 10 % of the interest in a limited liability company in which the Company has previously invested $ 250,000 . The Company’s interest in this partnership is less than 1 % of the partnership at cost basis. The purpose of the partnership is to purchase mineral interests located in the state of Ohio. On February 1, 2022 the Company entered into a Purchase and Sale Agreement to acquire various overriding royalty interests in approximately 75 wells primarily operated by XTO Energy, Inc. and located in the Eagleford area of Atascosa and Karnes Counties, Texas for a purchase price of $ 567,000 with an effective date of January 1, 2022. The Company completed a review and analysis of all events that occurred after the consolidated balance sheet date to determine if any such events must be reported and has determined that there are no other subsequent events to be disclosed.